How can U.S. depositors protect their cash against earning negative interest?

Protect your cash against earning negative interest.

Protect your cash against earning negative interest.

The European Central Bank’s announcement that it will lower interest rates in the Eurozone and charge banks to park their funds in Frankfurt overnight brings renewed attention to the problem of bank depositors earning little interest on their savings accounts.

The ECB’s move is designed to spur banks to lend out more in the form of loans to European companies and individuals. By cutting its deposit rate to negative 0.1%, the central bank aims to boost economic growth in the region, which has struggled to overcome a sovereign-debt crisis that followed the global financial crisis and sparked a deep recession.

As the world emerges from the financial troubles of the last half-decade, central banks are signalling that low interest rates will continue. The U.S. Federal Reserve is ending its own quantitative-easing program, which pumped extra money into the economy, but rates are only expected to rise slowly for the next few years, unless inflation spikes sharply.

While more bank loans could have a positive effect on European businesses and encourage companies in the region to invest more, this is not good news for bank depositors. They are already suffering from ultra-low interest rates on savings accounts. Many people are fundamentally uncomfortable with the idea of having to pay to keep their money in the bank. With today’s near-zero interest rates on offer from most banks, the real return on cash is often negative, even in the U.S.

Fortunately, depositors have options. In the U.S., online banks have lower operating costs than traditional brick-and-mortar banks and are thus able to pay higher interest rates to their depositors.

With Max (MaxMyInterest.com), we have built an automated system that helps depositors benefit from the higher rates on offer from FDIC-insured online banks. Today, our members are earning a weighted average 0.87% on their cash, or 0.79% net of fees, which compares favorably to most bank accounts or money market funds that offer little to no yield.

The effects of compounding are important to an investor’s portfolio. Earning an extra 0.70% to 0.80% on deposits, year after year, can have a profound impact. Most Max members can expect to earn tens or hundreds of thousands of dollars in incremental interest over their investment horizons, simply by using Max to help continuously optimize their cash allocation across multiple online bank accounts.

Periodically reviewing one’s portfolio and ensuring that cash is working as hard as possible — while spread across enough banks to be adequately covered by FDIC insurance — is one way to enhance returns without taking on more risk. Many depositors, however, are too busy to focus on how they manage their cash. In a time of low interest rates, it’s crucial to keep on top of which online banks are offering the best rates and move deposits accordingly — or let Max handle it for you, automatically.

Gary Zimmerman is the Founder of MaxMyInterest.com.

Amanzoe: Ultimate Beach Vacation

A serene colonnade at Amanzoe.

A serene colonnade at Amanzoe.

The height of the European sovereign-debt crisis wasn’t the most logical time to open an ultra-luxury resort in hard-hit Greece. But the Greek coastline remains stunningly beautiful, and in 2012 Aman Resorts debuted Amanzoe in Porto Heli. It’s the first Greek property for the global Aman brand.

Guests report that the resort provides what one expects from Aman: exclusivity, tranquility, and uniqueness. Although Amans can be found around the world, Amanzoe goes for the wraparound Greek experience, as pictured in Greece-based fashion brand Folli Follie’s most recent ad campaigns, shot on the property.

When you arrive, multilingual staffers bring you glasses of sparkling water with lime, fresh basil, and local honey collected by hand nearby. You may want to order some loukoumades, Greek puffed pastry with honey, which the hotel says is the recipe most often requested. Or just nibble on local flavors — pasteli, lemon juice, pistachios, chips, chocolate and fruit — from the platters brought up to the rooms each day. The resort will soon be pressing grown-on-the-property olives for oil.

Amanzoe's beach club.

Amanzoe’s beach club.

Amanzoe, with stately colonnades and reflecting pools, has been attracting visitors from all over the world. Most guests are from the U.K., U.S., and Germany, with others from throughout Europe as well as Asia and Latin America. The target visitor: international jetsetters seeking new experiences. Amanzoe’s most popular rooms are the Deluxe Sea View pavilions, each of which has a 12-meter pool, for 1,600 Euros per night. About one-third of guests arrive by helicopter.

The area, on the eastern Peloponnese with views of the Aegean Sea, has long been a weekend and vacation retreat for yachting Europeans, says Katerina Katopis, a director of Dolphin Capital Partners, which built and owns the resort. To capitalize on this, Amanzoe is the first Aman in Europe to include villas, for sale or rent. So far, the resort has sold 10 villas, with 4 already built. 2 bedroom villas start at about €3 million and 4 bedrooms at around €6 million, Katopis says.

Athens-based Dolphin put $135 million into building the resort, designed by serial Aman architect Ed Tuttle. The investment firm is now building another Aman in the Dominican Republic.

The Max Luxe Blog is purely editorial, not advertising. We showcase products, destinations, and solutions we think Max members will find useful. Max does not receive compensation for mentions on the Max Luxe blog.

4 Ways to Keep Your Cash Safe

Watch your cash grow with Max

Sitting on a lot of cash?  Make sure it’s fully insured.

Banks are the safest place to keep your money — until they’re not. It’s a remote risk, but bank failures do occasionally happen.  It’s important to ensure your cash is adequately protected, before it’s too late.

That’s why deposit insurance exists. In the U.S., the government’s FDIC insurance program guarantees the first $250,000 of a depositor’s cash in each insured bank. But many depositors hold much more than the FDIC limit in cash, leaving a portion of their cash at risk in the unlikely event of a bank failure. Investors keep a portion of their financial assets in cash precisely because they don’t want to take risk, so it makes sense to ensure that as much of your cash as possible is protected by FDIC insurance.

Here are 4 ways to keep your cash safe:

1. Open multiple account types

FDIC insurance tops out at $250,000 per depositor, per account type, and per bank. If you set up an account for yourself, one for your spouse, and one held as a joint account in both of your names, together you now have $1 million in FDIC coverage at that bank: $250,000 for each of your individual accounts, plus another $250,000 for each of you for the joint account.

2. Ask if your bank has multiple bank charters

The largest national banks often have more than one bank charter. This means they can offer their account holders the ability to have accounts at what’s technically more than one bank. Because FDIC coverage applies per bank, this can increase the deposit insurance that account holders can receive. If you hold $750,000 at a bank that has three bank charters, you may be insured under FDIC rules for the entire balance. Ask your bank if this applies to your accounts and read the fine print to ensure you are adequately protected.

3. Open accounts at different banks

To make sure your cash in the bank is insured, you can open accounts at a variety of banks. That way, even if one bank fails, you’ll still have access to your accounts at the other banks.  Be sure to keep your accounts below the $250,000 FDIC coverage limit at each bank.

As you spread your accounts among different banks, consider online banks as well as traditional brick-and-mortar banks. Savings accounts at online banks often pay considerably more in interest, because they don’t have to support the same level of expenses for branches or tellers. Just be sure to monitor the rates your banks are paying, so you can make certain you’re getting the most interest you can. Banks change their rates frequently.

4. Use MaxMyInterest.com to manage accounts held at multiple banks to keep you within the FDIC limits while earning more in interest

If you’d like a solution to help you manage your existing brick-and-mortar checking account along with online savings accounts, while optimizing the amount of interest you earn, try our service, called Max, at MaxMyInterest.com. Max uses the links between your brick-and-mortar checking account and your online savings accounts to optimize the amount you earn in interest on your cash in the bank, while respecting FDIC limits. That means that your money automatically moves between your own accounts to stay within the FDIC limits at each bank, while helping you earn as much interest as possible, even as rates change.

As an alternative to bank accounts, many investors choose to keep cash in money market funds.  This is especially prevalent within brokerage accounts.  However, shares of these funds aren’t insured, which means they could potentially lose value. During the global financial crisis, one such fund, the Reserve Primary Fund, dipped below $1 per share in value, sparking an exodus from this class of investments. Since then, Americans’ investments in money market funds have fallen from $4 trillion to $2.7 trillion today.

One downside of money market funds: many of these funds currently yield as little as 0.01% annually. By contrast, bank accounts typically pay 10 times that much in interest and online savings accounts managed through the MaxMyInterest.com system are yielding approximately 80 times more, even after taking fees into account.  Max members are currently earning a weighted average of 0.87%, or 0.79% net of fees, all via FDIC-insured savings accounts at leading online banks including American Express, Barclays, GE Capital, Ally Bank and Capital One 360.

Gary Zimmerman is the Founder of MaxMyInterest.com.

Welcome to the New Max Blog

Here at Max, we like to optimize everything. So while we’re focused on helping you earn as much as possible on your cash, we also think about how to make the most out of life (and invest or spend the incremental interest income that Max generates.)

Today, we’re launching a new blog, focused on optimizing your finances and your lifestyle. Much like Max itself, the content of our blog is all editorially independent — Max does not accept compensation to feature companies or services on our blog. We’re simply looking out for your best interest.

If there’s something you’d like to see on the blog, please contact us. In the meantime, we hope you enjoy our personal finance blog, Basis Points, and our lifestyle blog, Max Luxe.

Best,

Team Max